The seismic analysis of underground structures requires a careful consideration of the important effect of shear strains in the soil due to vertically propagating horizontal shear waves. These strains result in ovaling deformations of circular tunnels or racking deformations of rectangular tunnels. Closed-form solutions as well as numerical analyses are used to characterize this soil-structure interaction problem. Many of these solutions assume full normal contact at the interface between the soil and tunnel lining. This work describes a numerical finite element study of soil-circular tunnel lining interaction with contact conditions that allow both limited slippage and separation to prevent development of potentially unrealistic normal tensile and tangential forces at the interface. The analyses highlight the significant limitations of widely used closed-form solutions in engineering practice. The finite element solutions demonstrate the need for realistic representation of the soil-tunnel interaction using numerical modeling approaches.